Definition

The term qualified settlement fund refers to a trust or fund created through state law to hold the proceeds from a settlement. Qualified settlement funds are oftentimes associated with class action lawsuits.

Explanation

Also referred to as a qualified settlement trust and 468b fund, a qualified settlement fund (QSF) is an agreement structure that simplifies lawsuit settlements. Authorized by Treasury Regulation 1.468B-1(c), which states the fund must satisfy the following:

It must be approved by a federal or state agency, and will be subject to the continuing jurisdiction of that agency.

It will resolve or satisfy claims that result from an event claiming liability.

It must arise out of a tort, breach of contract, or violation of a law.

The fund must be a trust under applicable state law.

Qualified settlement funds allow defendants to end litigation, while providing plaintiffs with access to assets. Defendants provide funding to the trust; however, they cannot participate in its administration. One of the benefits of these trusts is that it relieves both parties of the demands of the litigation process, while creating an opportunity to address post-litigation issues.

Defendants will oftentimes agree to the creation of a QSF so their organization is released from additional claims associated with the lawsuit as well as the benefit associated with an immediate tax deduction for the expense associated with funding the trust.